Money October 4, 2020

A can of Coke is $1 in the US vs 10¢ in developing countries: Why isn't it the same with SaaS?

Jules Maregiano @julesmaregiano

The cost of life is more or less expensive depending on where you live in the world.

But it seems like most SaaS companies price themselves the same everywhere.

Wouldn't a locally adapted pricing open a huge chunk of the market to SaaS companies?

What am I missing here? I'd love your thoughts.

You live in a "developing" country, do you find SaaS tools expensive?
  1. Yes, I can't get all the tools I need and it's an issue
  2. Yes, but I find workarounds easily
  3. No, the real issue is the language
  4. No, the real issue is the price of data in my country
  5. No, the real issue is our current work culture
  6. Other (specify in the comments)
Vote
  1. 24

    Volume is annoying for SaaS. Would you rather have 100 customers paying you $10k/year, or 1M customers paying you $1/year? I'd pick the 100 customers every time.

    • Fewer customers means fewer customer support requests, feature requests, etc., which means fewer headaches and higher margins.
    • Fewer customers means deeper and more meaningful relationships with the customers you do have. When I was doing sales calls for IH, I made friends with lots of my customers. I still keep up with some. Also still friends with my lawyer who negotiated my Stripe acquisition, because she has very few high-touch customers, not a ton of faceless customers.
    • Less diversity among your customers means it's easier to build something that works for everyone without going in a million different directions or considering tons of edge cases. Focusing is ideal when you're a small team.
    • Higher-paying customers means you have more signal as to what's valuable, and you can build additional features and upsells that generate revenue more easily.
    • etc.

    Coca-cola is a massive company. One of the most common failure modes I see is small companies trying to copy what mature companies are doing. You can do that eventually ofc, but imo it's better to wait until you're mature.

    1. 2

      I kinda disagree with this because it becomes relative in each country you are targeting. For example i'm from South America in Ecuador minimum wage is about $394 USD the median wage is $450 USD. This monthly wage has to cover their rent food etc etc. So lets use bubble(no code saas) as an example their cheapest plan is 25$ a month it becomes expensive for these people thats 5% of their monthly wage. Compare that to someone living in Australia where they are getting $3166 a month for minimum wage. 25USD == 35 AUD at current rates.

      35/3166 is 1% of their monthly wage so if we go by that 1% then in Ecuador that would be $4.50 But lets say that you price it at 10$ or even $12, $13 its much easier for these people to handle it then $25.

      Now lets say that the difficult customer is actually acquired at a price point of $5 but a good customer is acquired at 10$ you essentially ignored these other people. Your costs do have to be controlled though which means more than likely you would have to have a support team that is local as well to control costs (local wages lower costs etc) and then the volume game isn't that bad any more. It just adds to your bottom line.

      I for one love that everyone is ignoring developing countries more opportunities for me LOL. I used to think that I "missed" the dot com boom but it turns out that it's still happening in developing countries. It's there for the taking :)
      Great post!

    2. 2

      Thanks Courtland, I see your point. It reminds me of AppSumo launches and SaaS founders having to answer tens of support messages everyday to, let's say "difficult" customers having paid your product -80% ;D
      Your message was very helpful, I've taken quite some notes from what you said, cheers.

    3. 1

      Fair points, but I partly disagree.

      The argument of hundreds or millions of users isn't adequate. The perceived price will dictate adoption, and the perceived price will not change between countries, what changes is the currency value.

      So if I'm aiming at the 100 richer companies in US, I could still keep that goal in a developing country, but equalising the cost of purchase to be rational in that currency.

      Lot's of companies do that already. For ex., you will not pay the same for a SAP implementation in USA versus Brazil, where I'm at. Even IBM, Microsoft, and others charge less here.

      I myself am suffering a lot to pay all the US based Saas I use, now that my currency is devaluating. I'm lucky I got a client that will pay in USD, so I'm safe for the time being, but that's not the reality of the majority over here.

      And that's also a strong reason for so many copy cats of bigger Saas doing so well down here. They copy the model but charge in local money. Simple.

  2. 9

    Because the company/association/people behind the product pays in, in this case US$. It is possible to sell cola for $.1 in developing countries because there's a branch company that manufactures the product cheaper for said countries. Maybe the quality is less.

    Most likely small software companies can get away with doing this, but bigger companies have more employees and resources to maintain which probably requires the standard fee. The only way to make it cheap would be to have an offshore branch. For software companies, it's just not practical. Because wherever you are, your product will be the same. The only way to make it cheaper would be hire cheaper talent which again may result in lower quality.

    1. 2

      I completely agree with you: When marketing and customer success is paramount to a SaaS, opening a new country will be done super carefully and simply adapting the price is not enough.

  3. 5

    I own a brick-and-mortar language school in Ukraine. A client pays $20/month to physically visit the language school.
    A good, full-featured SaaS language school management system costs ~$200-300/month.
    So I need 30 paying clients to just pay for a SaaS to manage my business - that's insane!
    That's as much as paying a full-time salary to a local professional with a masters degree!

    Of course, in EU countries where clients pay $100-200/month for brick-and-mortar language courses, such CRM prices are acceptible. But not in Ukraine and other post-USSR countries.

  4. 4

    As someone living in country where $400/mo considered "higher than average" salary, I can name number of reasons:

    1. Most SaaS is B2B, not B2C. For businesses, cost of developing same product "in-house" are still high, because developers everywhere in the world earning more or less decent amount of money. So it's still cheaper to use service vs build it.
    2. In B2C case, most SaaS are not localized, so if user can understand interface, chances that he can find clients in US/EU and get paid in $
    3. In some jurisdictions or even services it's prohibited and called "price discrimination". So be careful
    1. 2

      Totally agree with #1 & #2 and I have a workaround issue #3 ;) Thanks man!

  5. 3

    For Coca cola, they have enough cash to do this and perhaps their cost of manufacturing is indeed lower in the cheaper countries. Consumers get the exact same taste.

    For SAAS companies, that is not the case necessarily. A "cheap" customer can actually take equal or more time in support and could actually become a cost to the company.

  6. 3

    I think not knowing for sure where the user comes from is a big part of the reason why. Nowadays everybody can use a proxy or VPN and set their location to India and pay in rupees using Paypal/CC.

    1. 1

      I feel this isn't quite valid. I.e: I'm pretty sure Spotify simply uses your credit card's bank physical location to charge you appropriately, and vary their charge depending on your country.

      Perhaps services that don't have the infrastructure could run into issues like this, but this is probably fixable in many ways

    2. 1

      Some websites I visit ask me to turn off VPN or Adblocker, so if a $50/m site can do it why not $50million businesses?

      1. 3

        Nobody would turn off their VPN just to use some service (because then you would turn it off for all services).

        Also residential proxies all over world cost barely anything and no one will know that you are using a proxy

  7. 2

    Almost every tangible product is priced at What the market is willing to pay.

    I don't see why it should be any different for SaaS. There are apps on App/Play store with discriminative billing, but the best example I've seen is games on steam.

    e.g. Factorio costs around $30 USD in USA, $10 USD in India.

    I think as a indie hacker, discriminative billing is one of simplest, efficient way to scale up and the reason for why it's not being done frequently could be unsubstantiated apprehensions towards how their customer base would react to the discriminative billing or just failing to think along these lines.

    1. 1

      Right -- SaaS products are typically priced at what the average person around the world is willing to pay. But like with your example from Steam, you'll see better results if you evaluate how much each individual person will pay, as identified by the average income in their location, among other factors.

  8. 2

    With Stripe it's trivial to set different prices in different currencies... the problem, however, is 2-fold.

    First, you must know when to show the right price to someone. Using the locale settings is easy to circumvent with VPNs. IMO, the best way to ensure someone if from where they say they are is to validate either their tax ID number or passport number. This could be a cool product.

    Second is to determined the right price in different currencies. You would have to either research your local competitors or hire people who has this sensitivity.

    The above points are so much of a hassle that's no wonder companies with small moats are easily copied in local markets.

    1. 1

      From what I've seen doing dynamic pricing experiments with Modern Pricing's customers, very few people will go the extra mile to get lower pricing with a VPN. If they do, give them the lower price.

  9. 2

    Ms windows charged 3x in Australia what it charged in USA, cause they will "charge as much as the market will tolerate"

    It's yet just another thing to do for a smaller part of the pie.
    Like how many don't do translations.
    Pricing differently runs some risk of people bypassing a system and buying the cheaper version even from a more expensive region, it's way easier to control phisical distribution than digital one.
    Coca cola controls distribution with very draconian means in some areas...
    Like PS used to do regional distribution with DRM protection.

    It surely depends what your product is and if you do translation, localisation and get specific region distribution...

    For many they are too busy dealing with the most lucrative market that it takes many years before they take specific actions for other countries

  10. 1

    I think people who come from low-cost of living countries are at an advantage and a disadvantage here.
    Advantage: We can get away with much less revenue since we don't have many living expenses.
    Disadvantage: Tools get expensive real-quick relative to the cost of living.
    But if you complete the MVP stage and are growing while having paying customers that shouldn't be much of a problem.
    P.S I live in India and I think bubble is expensive myself too but it is what it is.

  11. 1

    For a lot of small businesses accepting payment in multiple currencies seems like a real challenge - like if I pay my costs in USD, but receive revenue in 3 different currencies then my revenue is going to fluctuate month to month as exchange rates change.

    Coke in Brazil can manufacture and source locally so it can fund it's local operations with local currency and based on local costs.

    That said I agree that if my overhead is pretty low and I could make it difficult to fake your location then it would make sense to offer localized pricing. One thing I would worry about is my customers in expensive countries finding out about the lower prices in say Brazil or India, and having it negatively impact their perception of their pricings fairness and the products value. Maybe better to create a sub-brand for developing markets with slightly different features so that direct comparisons are difficult to make.

  12. 1

    That comparison is really cool but it doesn't apply to SaaS per say because there are easy workarounds to have the same service for less price.

    Internet is a global infrastructure that make borders nonexistent. It's not the same comparison though. It's different products, for different targets by different providers.

  13. 1

    I think theres a term for it, its called 'Parity Purchasing Power'.

    I've seen couple of web application that does this.

    1. 0

      Yes, exactly. How much you are willing to pay varies widely from person to person, even within the same country. I built an API that takes into consideration factors like PPP -- https://modernpricing.com -- give it a try!

  14. 1

    I think it's a great idea to try out. A lot of SaaS products have margins of 80-90%+ so there's no reason why you couldn't geo fence pricing (and it could give you overall more revenue, more virality and more customer feedback and testimonials etc). A lot of companies are doing it but not precisely with your intention I feel (i.e. with some of the larger SaaS companies you can buy in USD, GBP, AUD etc.) but you could set the price based on location. And also if you compare it to selling more expensive software, I can tell you people who sell software around the world will charge an Indian or Vietnamese customer a lot less than customers in Australia, UK, US etc. Good luck!

    1. 1

      Yes, the margin piece is exactly why SaaS products are a great candidate for dynamic pricing. If your variable costs are not impacted when you produce X more widgets, you should optimize for selling as many widgets as possible. That means changing the price to capture the full demand curve is typically a winning idea.

  15. 1

    Technical limitations maybe.

  16. 0

    We saw revenue from new customers more than double overnight by applying a dynamic pricing strategy at Codecademy. I turned this strategy into an API, https://modernpricing.com, and dozens of other companies are seeing similar results. If your customer base is widely distributed, and your margins are high (like in SaaS) then this pricing strategy will be well worth the effort.

  17. 1

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